THOUGHTS FOR YOUR PENNY

By William Davis

Back in 1880s, the great Thomas Edison had business interests in more than a few electricity-related companies. In the day, his informal conglomerate included Edison Lamp Company, a lamp manufacturer in East Newark, New Jersey; Edison Machine Works, a manufacturer of dynamos and large electric motors in Schenectady, New York; Bergmann & Company, a manufacturer of electric lighting fixtures, sockets, and other electric lighting devices; and Edison Electric Light Company, the patent-holding company backed by J.P. Morgan and the Vanderbilt family. Late in the decade, Drexel, Morgan & Co. helped merge the inventor’s portfolio under one corporation: Edison General Electric Company was incorporated in New York on April 24, 1889.

The Indian Head cent was the U.S. coin of choice for around 50 years.

In the coming years, technologies like the lightbulb and electric appliances revolutionized daily existence. Radio and television came along to entertain the masses, while X-ray machines allowed doctors to peer inside the body. Vacuum tubes became the brains of early computers. Power stations sprung up around the country to made them all run. Industrial plastics found their way into everything. Jet engines brought it all closer. All of those technologies were either invented or commercialized by General Electric Co.

The Lincoln cent was introduced in 1909 and became the nation’s penny.

Fact is, for most of its 126-year history, GE exemplified what might be called the best of American capitalism. It manufactured consumer products and industrial machinery, powered commercial airliners and nuclear submarines, produced radar altimeters, romantic comedies, and Disney World attractions. It won Nobel Prizes and helped win world wars. And it did it all lucratively, rewarding investors through recessions, technological disruption, and the late 20th century collapse of American manufacturing.

The U.S. Mint reports that the unit cost of producing and shipping one-cent coins is about .70 cents more than the face value of the coin.

But the big conglomerate hasn’t inspired much amazement for some time now. The company had to be bailed out in 2008 through an emergency stock sale, a good chunk of it to Warren Buffett, and $139 billion in loan guarantees from the federal government. Across the 16-year tenure of recently departed CEO Jeffrey Immelt, GE stock was the worst performer in the Dow Jones industrial average. It was less than a year ago that then new and soon-to-be-ex CEO John Flannery shocked investors by cutting GE’s payout in half and throwing out earnings targets for 2017. To bottom it out, less than a day ago, now new and probably soon-to-be-ex CEO Larry Culpannounced the formerly blue-chip company is slashing its dividend to a token 1 cent.

It’s been suggested that the cent should be eliminated as a unit of currency, primarily because so few Americans actually spend them.

Ironically, or sadly, or ironically sad, GE’s jet engines still dominate the global market, its turbines still provide a third of the world’s electricity, and its CT scanners and MRI machines are still the state of the art.Yet the latest generation of executives at the company that brought organizational rigor to the process of scientific discovery (anybody remember Six Sigma?) are shriveling while the U.S. economy is vigorously expanding. It could be said that what they’ve brought their company, including its symbolic dividend, is worth next to nothing.

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What the numbers are saying…

83%

Proportion of U.S.-listed initial public offerings in 2018 involving companies that lost money in the 12 months leading up to their debut, the highest percentage on record

What legendary investors are saying…

“Seriously, does anyone know why Sears is still in business?”

Stanley Druckenmiller, former chairman and president of Duquesne Capital

What legendary economists are saying…

“…a downturn brought on in the next few years by rising long-term interest rates would likely be deeper and longer than your average recession. Unfortunately, there’s nothing at this point that the Federal Reserve or any other government actor can do to prevent that from happening.”

Martin Feldstein, chairman of the Council of Economic Advisers under President Reagan

What legendary consulting firms are saying…

“It feels like investors are in the early stages of positioning themselves for a potential downturn. They are returning to cash and relatively defensive positions.”

Tyler Cloherty, research head at Casey Quirk, a consulting practice of Deloitte

What the facts are saying…

The S&P 500 has fallen in 16 of the 21 sessions this month, the most in a single month since October 2008. A 17th dip would be its most in a month since April 1970, according to Dow Jones Market Data.

The forward price/earnings ratio of the MSCI All Country World Index — which tracks performance across 23 developed and 24 emerging markets — has fallen to around 18, its lowest level since early 2016.

A decline of 0.8% this week would put the S&P 500 in correction territory, or 10% below its recent high, for the first time since February. The Dow is off about 2% from entering a correction. Both indexes are in the red for 2018.

The Nasdaq is down 11% for the month. Still, the technology-heavy index is up 3.8% for the year.

Palladium futures have fallen in consecutive sessions after hitting an all-time high of $1,127 an ounce Tuesday. With the rally, palladium closed the gap on gold to about $100, the smallest difference between the materials in more than 15 years.

What folks with an ears to the Street are saying…

“Is this the big one? Not even close, but there is something unusual and unsettling afoot in financial markets.”

Heard on the Street columnist Spencer Jakab

“Sudden stock-market selloffs have wrong-footed investors twice in a single month. Yet the violence of the rout may counterintuitively be good news for stocks.”

Heard on the Street columnist Jon Sindreu.

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